What is Gold?

Gold is a chemical element with symbol Au (from Latin: aurum) and atomic number 79. In
its purest form, it is a bright, slightly reddish yellow, dense, soft, malleable and ductile metal.
Chemically, gold is a transition metal land a group 11 element. It is one of the least reactive
chemical elements, and is solid under standard conditions. The metal therefore occurs often in
free elemental (native) form, as nuggets or grains, in rocks, in veins and in alluvial deposits.
It occurs in a solid solution series with the native element silver (as electrum) and also
naturally alloyed with copper and palladium. Less commonly, it occurs in minerals as gold
compounds, often with tellurium (gold tell rides).
Gold's atomic number of 79 makes it one of the higher atomic number elements that occur
naturally in the universe. It is thought to have been produced in supernova nucleon
synthesis from the collision of two neutron stars and to have been present in the dust from
which the Solar System formed. Because the Earth was molten when it was just formed,
almost all of the gold present in the early Earth probably sank into the planetary core.
Therefore, most of the gold that is present today in the Earth's crust and mantle is thought to
have been delivered to Earth later, by asteroid impacts during the late heavy bombardment,
about 4 billion years ago.
Gold resists attacks by individual acids, but it can be dissolved by aqua regia (nitrohydrochloric acid, literally "royal water"). The acid mixture causes the formation of a
soluble gold tetrachloride anion. Gold metal also dissolves in alkaline solutions of cyanide,
which are used in mining and electroplating. It is insoluble in nitric acid, which dissolves
silver and base metals, a property that has long been used to refine gold and to confirm the
presence of gold in items, giving rise to the term acid test; it dissolves in mercury, though,
forming amalgam alloys, but this is not a chemical reaction.
This metal has been a valuable and highly sought-after precious metal for coinage, jewellery,
and other since long before the beginning of recorded history. In the past, a gold standard was
often implemented as a monetary policy within and between nations, but gold coins ceased to
be minted as a circulating currency in the 1930s, and the world gold standard was finally
abandoned for a fiat currency system after 1976. The historical value of gold was rooted in its
medium rarity, easy handling and minting, easy smelting, corrosion resistance, distinct colour,
and non-reactivity to other elements.
1

A total of 183,600 tonnes of gold is in existence above ground, as of 2014. This is equivalent
to 9513 m3 of gold. The world consumption of new gold produced is about 50% in jewellery,
40% in investments, and 10% in industry. Golds high malleability, ductility, resistance to
corrosion and most other chemical reactions, and conductivity of electricity have led to its
continued use in corrosion resistant electrical connectors in all types of computerized devices
(its chief industrial use). Gold is also used in infrared shielding, colour-glass production, gold
leafing, and tooth restoration. Certain gold salts are still used as anti-inflammatory in
medicine.

Characteristics: Gold is the most malleable of all metals; a single gram can be beaten into a sheet of 1 square
meter, or an ounce into 300 square feet. Gold leaf can be beaten thin enough to become
transparent. The transmitted light appears greenish blue, because gold strongly reflects yellow
and red. Such semi-transparent sheets also strongly reflect infrared light, making them useful
as infrared (radiant heat) shields in visors of heat-resistant suits, and in sun-visors for
spacesuits. Gold

is

good conductor

of

heat and electricity and

reflects infrared

radiation strongly.
In addition, gold is very dense: a cubic meter has a mass of 19,300 kg. By comparison, the
density

of lead is

11,340 kg/m3,

and

that

of

the

densest

element;

osmium

is

22,588 15 kg/m3.

Different types of Gold:

Unlike a car, television or a house, gold is not something that greatly varies in its purest form.
Gold found in ancient ruins from thousands of years ago will technically (if we ignore the
novel/antique aspect of it) have the same worth as a newly minted gold coin in present day IF
they have identical weight and purity. So the different gold types discussed in the industry are
simply variations of pure gold, meaning types of gold that have taken a different form due to
being mixed with other metals, or taking different shapes, or simply represented in different
forms. The purpose of this post is to remove any sort of confusion that might be present about
whats gold, what isnt and usually most critical, how much actual gold is inside it.

Types of Gold Alloys:

9K, 10K, 12K, 14K, 18K, 22K, 24K Gold: You might have heard gold being described by a
certain number followed by the letter K. This simply tells you how much actual gold is in
the gold jewellery or object in question. Something that is 24K gold is technically pure gold
(although depending on the country, pureness of 99% is usually enough to qualify it as 24K).
The K refers to the term karat or carat which is an ancient form of weight but now is used
to determine the pureness of the gold in question. For example 12K (which is half of 24K),
would tell you that your gold item has 50% actual gold inside it, with the rest being other
types of metal such as copper and silver. So whatever the karat value of your gold, divide it
by 24 and multiply by 100 to reach the % purity that your gold holds. In the U.S. gold below
10K purity cant be sold as gold jewellery.
Coloured Gold: Gold can take different colours depending on the metals it is mixed with.
The different gold hues are generally for the purpose of jewellery. To give you a quick idea
here are some different types of gold colours and how they are made:
White Gold: For gold to take a white colour, it must be mixed with a white metal such as
nickel, manganese or palladium. Standard White gold is usually 14K of gold (58.5% purity)
while the rest is divided as 21% copper, 7.84% zinc, and 12.73% nickel and White gold can
often be rhodium plated to give it a more shiny and white appearance.
Rose, Pink, Red Gold: Gold can take these colours when mixed with copper. The more
copper in the alloy, the darker the tone of red that will surface. A common rose gold alloy
3

composition is 18K (75% gold) mixed with 25% copper while a 50/50 mix of gold (12K)
with copper results in what we would call red gold.
Green Gold: Green gold, otherwise known as electrum, is a natural forming alloy which
combines gold and silver. The greenish colour varies depending on the exact mixture but back
in the 73% gold, 27% silver
Blue Gold: 46% gold, 54% indium.
Purple Gold: 80% gold, 20% aluminium.
Black Gold: 75% gold, 25% cobalt.

Types of Gold Bullion:

The term gold bullion refers to gold that gets its value from its purity and weight, as opposed
to jewellery or antiques where other factors such as aesthetics, colours, design, history,
novelty can come into play and affect the gold price. Gold bullion is useful for gold investors
as well as gold fabricators.
Gold Bars: When you see gold in movies or pop culture, youre likely to see it in the form of
gold bars. They often take rectangular shapes, although gold bars can take a multitude of
shapes as long as theyre refined. Gold bars are classified into two sub-types: cast and
minted. Gold bars which are cast and therefore thicker are generally called gold ingots while
gold that is stamped and hence thinner/flatter can carry the names gold biscuits or gold
wafers. Gold bars come in many different shapes and sizes and can generally be split into
55 categories. Only about 30 types of gold bars are in general circulation around the world
with the Good Delivery gold bars being the most popular.
Gold Bullion Coins: Its often mistaken that gold coins are expensive because they are
usually antiques or precious collectors items this isnt the case with gold bullion coins.
This form of gold works exactly the same way as the metal bars, except their shape are in the
form of coins and are usually much smaller in weight. Many different countries produce their
own gold coins with national emblems embedded onto them but the most popular ones in the
market today include Eagles, Maples, Kruggerands, Pandas, Prittannias, and Sovereigns.

Other types of Gold:

Numismatic Gold Coins: These types of gold coins generally dont have a fixed weight or
purity to it and tend to be old gold coins that are no longer in production. This makes these
gold coins collectors items or antiques and this can usually lead them to have value far above
their weight in gold.
Unrefined Gold: Gold in its raw/original state is naturally unrefined and can take different
forms. Gold nuggets for example are naturally occurring piece of native gold that have quite
large sizes and have a purity ranging from 20K-23K. Unrefined gold can also be in the form
of gold dust, or other types of gold deposits.
Gold Scrap: Gold scrap refers to any gold item that has more value for the gold inside it,
than its worth as an item. Usually broken gold jewellery is a good candidate as well as old
things lying around the house like a gold plated electronic items or pieces which are no
longer used. Many different grades and types of gold scrap exist with names such as Electro
Plated Gold, Gold Plate, Gold Wash, Gold Filled, Rolled Gold being thrown around to
describe them.

Different ways in investing in Gold:

Investing money in gold is worth because it is a hedge against inflation. Over a period of
time, the return on gold investment is in line with the rate of inflation. It is worth investing in
gold for a one more very valid reason. That is gold is negatively correlated to equity
investments. Say for example 2007 onwards, the equity markets started performing poorly
whereas the gold has performed well. So having gold as an investment option in your
portfolio mix will help you reduce the overall volatility of your portfolio.
Jewellery buying: Our age-old and traditional way of investment is jewellery buying where
one can buy gold ornaments, bars or coins. However, it has its own disadvantages, total
buying cost involves heavy making charges (it can be 10 to 20% of total cost).However,
when you try to sell the same piece to same jeweller, he will buy it below market rates and
deduct those making charges from the total price of your jewel.
Investment in Gold coins and bars: Investment in gold coins and bars is also a better option
over jewel buying. You need to decide on Where to buy gold coins or bars?. You should
buy gold bars and coins only from jeweller. Banks also sell gold coins or bars. Then why do
we advocate for buying god bars and coins from jewellers? To answer this question you ask
yourself How to sell gold coins or bars? or Where to sell gold coins in India?
Banks sell gold coins and bars, but they cannot buy it back. Whereas, the jewellers can buy
back the gold coins from you. How to invest in Physical Gold? The point 1) and 2) could
have proved that it is better to invest in the physical gold by way of gold coins or bars sold by
the jewellers.
Gold ETF: Gold exchange traded fund is a type of mutual fund which in turn invests in gold
and the units of this mutual fund scheme is listed in the stock exchange.
How to invest in Gold ETFs in India? You need to buy Gold ETFs from the stock exchange
by way of opening a demat account and trading account. You have to pay brokerage fee
(which is generally between 0.25% to 0.5%) for buying and selling of these Gold ETFs. You
will have to further pay 0.5 to 1 % charges as fund management charges.
6

Gold Fund of Funds: Gold fund is a Fund of Fund which will invest in Gold ETFs on behalf
of you. Best part here is that you do not require holding any demat a/c here. Then how to
invest in Gold Mutual Funds? Just like investing in other mutual fund schemes. As this is like
any other mutual fund scheme, SIP investment in gold is possible through these gold funds.
Still buying Gold fund of fund is little expensive option, as you have to pay 1) Annual
management charges for the underlying Gold ETF 2) Annual management charges of Gold
FOF Scheme.
Gold ETFs Vs Gold Mutual Funds: With Gold ETFs, you need to open demat account and
pay broking charges. With Gold Mutual Funds, you need to bear the additional charges
charged by the Gold Fund of Fund. If you are buying in less quantity then gold mutual funds
may be suitable. If you are buying in more quantity then you can negotiate for the lesser
brokerage charges from your stock broker, hence gold ETF may be suitable.
Equity based Gold Funds: Here these funds are directly not investing in Gold but investing in
the companies, which are related to the mining, extracting and marketing of the Gold.
Besides, its performance is purely dependent upon the performance of the fund house and the
equities they are investing. In the other 4 options, your investment performance will be
directly linked to the price movement in gold. However, investment in these funds is suitable
for investors with high-risk appetite. As these are equity-based funds, equity risk is there.
There are no listed companies in India associated with Gold. Therefore, these funds trade in
international market and quiet susceptible to currency-risk apart from gold-risk and equity
based risk. Therefore after assessing or weighing pros and cons of each gold investment
option, one can conclude that Gold ETFs and Gold Funds are safest, profitable and most
preferred options among the various alternatives.
How much to invest in Gold?
5% to 10% of your over assets can be invested in gold. If you invest more in gold, remember
in the long term return on gold investment is less than 10% p.a.
How to start investing in Gold online?

You can start investing in gold online either by investing in gold ETF or by investing in gold
funds. Gold funds can also be bought online just like investing in other mutual funds online.
The above compilation on different methods of investing in gold could have given you more
clarity about investing in gold. Clarity is power when comes to taking investment decisions.

How Gold Affects Currencies:

Gold is one of the most widely discussed metals due to its prominent role in both the
investment and consumer world. Even though gold is no longer used as a primary form of
currency in developed nations, it continues to have a strong impact on the value of those
currencies. Moreover, there is a strong correlation between its value and the strength of
currencies trading on foreign exchanges.
Gold was once used to back up fiat currencies:
As early as the Byzantine Empire, gold was used to support fiat currencies, or the various
currencies considered legal tender in their nation of origin. Gold was also used as the
world reserve currency up through most of the 20th century; the United States used the gold
standard until 1971 when President Nixon discontinued it.
One of the reasons for its use is that it limited the amount of money nations were allowed to
print. This is because, then as now, countries had limited gold supplies on hand. Until the
gold standard was abandoned, countries couldn't simply print their fiat currencies ad nauseum
unless they possessed an equal amount of gold. Although the gold standard is no longer used
in the developed world, some economists feel we should return to it due to the volatility of
the U.S. dollar and other currencies.
Gold is used to hedge against inflation:
Investors typically buy large quantities of gold when their country is experiencing high levels
of inflation. The demand for gold increases during inflationary times due to its inherent value
and limited supply. As it cannot be diluted, gold is able to retain value much better than other
forms of currency.
For example, in April 2011, investors feared declining values of fiat currency and the price of
gold was driven to a staggering $1,500 an ounce. This indicates there was little confidence in
8

the currencies on the world market and that expectations of future economic stability were
grim.

The price of gold affects countries that import and export it:
The value of a nation's currency is strongly tied to the value of its imports and exports. When
a country imports more than it exports, the value of its currency will decline. On the other
hand, the value of its currency will increase when a country is a net exporter. Thus, a country
that exports gold or has access to gold reserves will see an increase in the strength of its
currency when gold prices increase, since this increases the value of the country's total
exports.
In other words, an increase in the price of gold can create a trade surplus or help offset a trade
deficit. Conversely, countries that are large importers of gold will inevitably end up having a
weaker currency when the price of gold rises. For example, countries that specialize in
producing products made with gold, but lack their own gold reserves, will be large importers
of gold. Thus, they will be particularly susceptible to increases in the price of gold.
Gold purchases tend to reduce the value of the currency used to purchase it:
When central banks purchase gold, it affects the supply and demand of the domestic currency
and may result in inflation. This is largely due to the fact that banks rely on printing more
money to buy gold, and thereby create an excess supply of the fiat currency.
Gold prices are often used to measure the value of a local currency, but there are
exceptions:
Many people mistakenly use gold as a definitive proxy for valuing a country's currency.
Although there is undoubtedly a relationship between gold prices and the value of a fiat
currency, it is not always an inverse relationship as many people assume.
For example, if there is high demand from an industry that requires gold for production, this
will cause gold prices to rise. But this will say nothing about the local currency, which may
very well be highly valued at the same time. Thus, while the price of gold can often be used

as a reflection of the value of the U.S. dollar, conditions need to be analyzed to determine if
an inverse relationship is indeed appropriate.

What is Monetization?
Monetization is the process of converting or establishing something into legal tender. It
usually refers to the coining of currency or the printing of banknotes by central banks. Such
commodities as gold, diamonds and emeralds generally do have intrinsic value based on their
rarity or quality and thus provide a premium not associated with fiat currency unless that
currency is "promissory". That is, the currency promises to deliver a given amount of a
recognized commodity of a universally (globally) agreed-to rarity and value, providing the
currency with the foundation of legitimacy or value. Though rarely the case with paper
currency, even intrinsically relatively worthless items or commodities can be made into
money, so long as they are difficult to make or acquire.
The term "monetization" may also be used informally to refer to exchanging possessions for
cash or cash equivalents, including selling a security interest, charging fees for something that
used to be free, or attempting to make money on goods or services that were previously
unprofitable or had been considered to have the potential to earn profits.

Monetizing Debt:In many countries the government has assigned exclusive power to issue or to
print its national

currency to

a central

bank.

The

government treasury must

pay

off government debt either with

1. money it already holds (e.g. income or liquidations from a sovereign wealth fund)
2. taxes collected from the public
3. money it creates "out of thin air" (printing press money now electronic)
4. or by financing it by issuing new bonds

10

Government bonds may be sold to the public directly or to the central bank when government
needs money to repay bonds that have come due. In effect, these bonds are promises to create
money in the future, causing monetary inflation.
The central bank may purchase government bonds by conducting an open market purchase,
i.e. by increasing the monetary base through the money creation process. If government
bonds that have come due are held by the central bank, the central bank will return any funds
paid to it back to the treasury. Thus, the treasury may 'borrow' money without needing to
repay it. This process of financing government spending is called 'monetizing the debt'.
Central banks are usually forbidden by law from purchasing debt directly from the
government. For example, the Treaty on the Functioning of the European Union (article 123)
expressly forbids EU central banks' direct purchase of debt of EU public bodies such as
national governments. Their debt purchases have to be from the secondary markets.
Monetizing debt is thus a two-step process where the government issues debt to finance its
spending and the central bank purchases the debt, holding it until it comes due, and leaving
the system with an increased supply of money.

11

GOLD MONERIZATION SCHEME

Gold monetization: What it means
In his Budget speech, the Finance minister announced proposals to monetize gold. This
means, converting the countrys gold holdings into cash to spur spending and investment, and
limit the need to import gold.
It is a scheme that facilitates the depositors of gold to earn interest on their metal accounts.
Once the gold is deposited in metal account, it will start earning interest on the same.

Why there is Gold Monetization Scheme:Gold is a Non-Productive Asset:

As i highlighted in my post, Dream Home vs Gold Productive vs Non-Productive Asset that
Gold is a Non-Productive Asset. At best, Gold in a financial portfolio act as a hedge against
inflation. It should not be more than 15%-20% of the financial portfolio. According to rough
estimates, Indian household and other trusts are holding 20,000 tonnes of Gold. It is not a
good scenario for any economy. One of the objectives of a Gold Monetization Scheme is to
unlock the value of this non-productive asset. The unlocked value can be routed/circulated to
productive assets like Real Estate, Financial investments like Stocks, Debt, MF etc. For a
healthy economy, the contribution of non-tangible assets like financial investment should be
at least 40%. Whereas Indians believe in investments in tangible assets like Gold and Real
Estate. Gold Monetization Scheme will help to correct this skew through redemption option.
Interest Payment option under this scheme will be valued in gold. For example, if i open
Gold Savings Account & deposit 100 gms gold. Assuming the interest rate is 2% then i will
get 102 gms of gold at maturity.
Black Money and Gold Monetization Scheme:
Its a known fact that Gold & Real Estate were safe havens to park Black Money. Gold
Monetization Scheme is a good way to unlock the black money parked in the form of a gold.
12

As the Gold returns are in negative territory therefore timing of the Gold Monetization
Scheme is strategic. Currently, hoarders are also finding ways to either exit or convert it into
a sort of productive asset.
Current Account Deficit:
Depending on the success of Gold Scheme, it will increase the supply of Gold in the market.
Which in turn will reduce the import of Gold? Lower import of Gold will help to control the
current account deficit. Current account deficit is not good for the economic health of the
country. It means higher outflow of the dollar compared to dollar inflow from exports.
Current Account Deficit of last 2 years is 4.2% and 4.8% respectively. Indias major import
bill is of Gold and Crude Oil. If import > export then it increases the demand of dollar,
therefore, depreciates Indian Rupee. Depreciation of Indian Rupee will increase the inflation.
Gold is a hedge against inflation therefore in case of high inflation people will buy more
gold. The increase in Gold demand will further increase Current Account Deficit, therefore,
its a vicious cycle. To control this cycle, it is important to control the demand of gold.
Boost to Jewellery Sector:
Currently, the big jewellers buy gold from gold importers or trading houses. Small jewellers
buy from big jewellers. Gold Monetization Scheme will facilitate the availability of gold
through banks on the loan. Gold will be treated as a Raw material for Jewellery sector. Thus,
it will finish the monopoly of gold importers. Secondly, if the jeweller will buy gold on loan
from the bank then it will slowly bring the stability in Gold Prices. Speculators will be out of
business. Banks can also convert the gold deposited under Gold Savings Account to Gold
Coins and sell to their customers.
Gold Prices will come down:
If Gold Monetization Scheme is successful then there will be a sudden increase in the supply
of gold which in turn will decrease the Gold Price. Therefore, Gold Monetization Scheme is
good news for people who are waiting to buy gold at the lower price provided the scheme is a
success. It has a flip side also. The drop in Gold price may result in out of proportion increase
the demand which will defeat the whole purpose of launching this scheme. Therefore, the
government should control the gold deposits in Gold Savings Account.

13

Eligibility for the depositor:Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds
registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under
the scheme. The opening of gold deposit accounts will be subject to the same rules with
regard to customer identification as are applicable to any other deposit account.

What will the banks do with the gold:The designated banks may sell or lend the gold accepted under the short-term bank deposit to
MMTC for minting India Gold Coins and to jewellers, or sell it to other designated banks
participating in the scheme.

Term Involved:Entities participating in Gold Monetisation Scheme can earn up to 2.50 percent interest rate
on their idle gold. Interest rate on Medium and Long Term Government Deposit (MLTGD)
are 2.25 percent and 2.20 percent, respectively, according to a notification issued by RBI
today. The tenor of medium term would be between 5-7 years while long term would for 1215 years tenure. The deposit under MLTGD category will be accepted by the designated
banks on behalf of the central government. The receipts issued by the Collection and Purity
Testing Centre (CPTC) and the deposit certificate issued by the designated banks shall state
this clearly. The government had in September cleared the gold monetisation scheme aimed
at tapping part of an estimated 20,000 tonnes of idle gold worth about Rs 5,40,000 crore into
the banking system. The gold received under MLTGD will be auctioned by the agencies
notified by the government and the sale proceeds will be credited to government's account
held with RBI, it said. Reserve Bank of India will maintain the Gold Deposit Accounts
denominated in gold in the name of the designated banks that will in turn hold sub-accounts.

How the redemption takes place?

Customer will have the choice to take cash or gold on redemption, but the preference has to
be stated at the time of deposit.
14

How is the interest rate calculated?

Both principal and interest to be paid to the depositors of gold will be valued in gold. For
example if a customer deposits 100 gm of gold and gets one per cent interest, then, on
maturity he has a credit of 101 gram. The interest rate is decided by the banks concerned.

BENEFITS ON OPENING AN ACCOUNT?

There are many positives to depositing under the Gold Monetisation scheme:
The gold monetisation scheme earns interest for your gold jewellery lying in your

locker. Broken jewellery or jewellery that you don't want to wear can earn interest for you in
gold.

Coins and bars can earn interest apart from the appreciation of value

Your gold will be securely maintained by the bank.

Redemption is possible in physical gold or rupees hence giving your gold purchase
further earning opportunity.

Earnings are exempt from capital gains tax, wealth tax and income tax. There will be
no capital gains tax on the appreciation in the value of gold deposited, or on the interest you
make from it.

Purity Verification and Deposit of Gold

Purity Testing Centres: There are at present 350 Hallmarking Centres that are Bureau of
Indian Standards (BIS) certified spread across various parts of the country (List of the
number of centres in each states is at Annexure-II). These centres may not necessarily be
jewellers. They are engaged in certifying the purity of the gold that the jewellers manufacture
on a daily basis and for which they charge a fee from the jewellers. These Hallmarking
Centres will act as Purity Testing Centres for the GMS as they are well equipped to conduct
a test of purity of the jewellery in a short span of time.

15

Preliminary Test: In a Purity Testing Centre, a preliminary XRF machine-test will be

conducted to tell the customer the approximate amount of pure gold. If the customer agrees,
he will have to fill-up a Bank/KYC form and give his consent for melting the gold. If the
customer does not agree to the XRF machine test, he can take his jewellery back at this stage.
The time spent by the customer will be about 45 minutes in the centre up till this stage.
Fire Assay Test: After receiving the customers consent for melting the gold for conducting
a further test of purity, at the same collection centre, the gold ornament will then be cleaned
of its dirt, studs, meena etc. The studs will be handed-over to the customer there itself. Net
weight of the jewellery will be taken after such removals and told to the customer. Then, right
in front of the customer the jewellery will be melted and through a fire assay, its purity will
be ascertained. These centres have viewing galleries from where the customer can see the
entire process. The time taken is expected not to exceed 3-4 hours.
Deposit of Gold: When the results of the fire assay are told to the customer, he has a choice of
either refusing to accept, in which case he can take back the melted gold in the form of gold
bars, after paying a nominal fee1 to that centre; or he may agree to deposit his gold (in
which case the fee will be paid by the bank). If the customer agrees to deposit the gold, then
he will be given a certificate by the collection centre certifying the amount and purity of the
deposited gold.
Conditions: The minimum quantity of gold that a customer can bring is proposed to be set at
30 grams, so that even small depositors are encouraged. Gold can be in any form (bullion or
jewellery).

Opening of Gold Savings Account with the banks.

Gold Savings Account: When the customer produces the certificate of gold deposited at the
Purity Testing Centre, the bank will in turn open a Gold Savings Account for the customer
and credit the quantity of gold into the customers account. Simultaneously, the Purity
Verification Centre will also inform the bank about the deposit made.
Interest payment by banks: The bank will commit to paying an interest to the customer
which will be payable after 30/60 days of opening of the Gold Savings Account. The amount
of interest rate to be given is proposed to be left to the banks to decide. Both principal and
16

interest to be paid to the depositors of gold, will be valued in gold. For example if a
customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a
credit of 101 gms.
Redemption: The customer will have the option of redemption either in cash or in gold,
which will have to be exercised in the beginning itself (that is, at the time of making the
deposit).
Tenure: The tenure of the deposit will be minimum 1 year and with a roll out in multiples of
one year. Like a fixed deposit, breaking of lockin period will be allowed. Tax Exemption: III.
Transfer of Gold to the Refiners In the Gold Deposit Scheme (1999), the customers received
exemption from Capital Gains Tax, Wealth tax and Income Tax. Similar tax exemptions are
likely to be made available to the customers in the GMS after due examination.

17

Transfer of Gold to the Refiners

Refineries: At present there are about 32 refineries in the country. The laboratories of some of
these refineries are NABL accredited which means that the process that they adopt is
certified.BIS has been asked by this Department to ascertain if it can conduct accreditation of
the products being produced in these refineries also.
Transfer of gold to refineries: Purity Testing Centres will send the gold to the refiners. The
refiners will keep the gold in their ware-houses, unless the banks prefer to hold it themselves.
Payment: For the services provided by the refiners, they will be paid a fee by the banks, as
decided by them, mutually.

Utilization of Deposited Gold

CRR/SLR: To incentivize banks, it is proposed that they may be permitted to deposit the
mobilized gold as part of their CRR/SLR requirements with RBI. This aspect is still under
examination. Foreign
Currency: Banks may sell the gold to generate foreign currency. The foreign currency thus
generated can then be used for onward lending to exporters / importers.
Coins: Bank may convert mobilized gold into coins for onward sale to their customers
Exchanges: Banks to buy and sell on domestic commodity exchanges, where mobilized gold
can be delivered.
Lending to jewellers: For lending to jewellers.

Lending the Gold to the Jewellers

Gold Loan Account: The jewellers, on the basis of the terms and conditions of the banks, will
get a Gold Loan Account opened at the bank.

18

Delivery of gold to jewellers: When a gold loan is sanctioned, the jewellers will receive
physical delivery of gold from the refiners. The banks will in turn make the requisite entry in
the jewellers Gold Loan Account.

MoU between Banks, Refiners and Purity Testing Centres

The banks will enter into a tripartite MoU with refiners and purity testing centres that are

selected by them to be their partners in the scheme.

The MoU will clearly lay down the details regarding payment of fee, services to be
provided, standards of service and the details of the arrangements between the banks, refiners
and purity testing centres.

19

20

SCHEDULE OF FEES
1) Melting charges :
a) Minimum charges/upto 100 gms - Rs. 500 per lot
b) 100 gms to 200 gms - Rs. 600
c) 200 gms to 300 gms - Rs. 700
d) 300 gms to 400 gms - Rs. 800
21

e) 400 gms to 500 gms - Rs. 900

f) 500 gms to 600 gms - Rs.1000
g) 600 gms to 700 gms - Rs. 1100
h) 700 gms to 800 gms - Rs.1200
i) 800 gms to 900 gms - Rs.1300
j) 900 gms to 1000 gms - Rs.1400
2) Testing/fire assaying charges - Rs. 300
3) Stone removal charges - at actuals Minimum charge - Rs. 100
4) Melting loss - at actuals

Documents required for account opening:

All the documents for verification i.e. know your customer (KYC) would be required i.e.
address proof, ID proof and passport size photograph. If more documents are required then
the same would be asked by the respective banks.
1.

Once verification is done, depositor will have to approach the government authorized
Collection and Purity Testing Centres (CPTC). Banks will provide this list to the
depositor.

2.

CPTC will then perform a detailed assessment of the gold and upon successful
verification they will issue a receipt which is signed by the authorized signatories of
their centre.

3.

Depositor will then have to submit the receipt in the bank. They will issue a final
deposit certificate to the depositor which will also contain the tenure for which the
deposit is made.

22

WHAT IS THE SOVEREIGN GOLD BOND?

The Government of India has launched the sovereign gold bond scheme. In this the investors
will get returns that are linked to gold price, the scheme is expected to offer the same benefits
as physical gold. They can be used as collateral for loans and can be sold or traded on stock
exchanges.
The gold bond will work just like a regular coupon bearing bond that the government issues
to borrow money for various purposes. The government receives money from investors, who
invest in the bond, and pays a fixed periodic interest known as coupon on it. On maturity, it
returns the money to the investors. Similarly, in a gold bond, investors, such as households,
will be able to lend money to the government by investing in a bond whose price will be
23

based on the price of a fixed quantity of gold. On this, they will periodically receive a coupon
(1.5-2% according to estimates). On maturity or sale of the bond, the bond holder will receive
an amount equal to the value of the underlying amount of gold as on that date. Therefore,
they will get the same return as buying gold bars or coins and selling them later, when their
price increases.

Benefits:

The Sovereign Gold Bonds will be available both in demat and paper form.

The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and
7th years.

They will carry sovereign guarantee both on the capital invested and the interest.

Bonds can be used as collateral for loans.

Bonds would be allowed to be traded on exchanges to allow early exits for investors
who may so desire.

Further, bonds would be allowed to be traded on exchanges to allow early exits for
investors who may so desire.

In Sovereign Gold Bonds, capital gains tax treatment will be the same as for physical
gold for an 'individual' investor. The department of revenue has said that they will consider
indexation benefit if bond is transferred before maturity and complete capital gains tax
exemption at the time of redemption.

HOW CAN I BUY IT?

Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of
gold. Minimum investment in the bond shall be 2 grams. The bonds can be bought by Indian
residents or entities and is capped at500 grams.

24

WHERE CAN I BUY IT?

Investors can apply for the bonds through scheduled commercial banks and designated post
offices. NBFCs, National Saving Certificate (NSC) agents and others can act as agents. They
would be authorised to collect the application form and submit in banks and post offices.

WHO IS ISSUING THE BONDS?

The Bonds are issued by the Reserve Bank of India on behalf of the Government of India.
The bonds are distributed through banks and designated post offices. This should make
subscribing to the bonds an easy affair. During redemption, "the price of gold may be taken
from the reference rate, as decided, and the Rupee equivalent amount may be converted at the
RBI Reference rate on issue and redemption".

Key features of Sovereign Gold Bonds

Eligibility: Resident Indian entities including individuals, HUFs, Trusts, Universities

and charitable institutions

Denomination: Multiples of gram(S) of gold with a basic unit of 1 gm

Tenure: 8 years with an exit option from the 5th year to be exercised on the interest
payment dates

Minimum size: 2 units (i.e. 2 grams of gold)

Maximum limit: 500 grams per person per fiscal year (April-March). The Compliance
will be on self-declaration basis

Joint holder: In case of holding, the investment limit of 500 gram will be applied to
the first applicant only

Frequency: The Bonds will be issued in tranches, each tranche will be kept open for a
period to be notified. The issuance date will also be specified in the notification
25

Issue price: Price of bond will be fixed in Indian Rupees on the basis of the previous
week's (Monday-Friday) simple average of closing gold price for gold of 999 purity
published by the India Bullion and Jewelers' Association (IBJA)

Payment option: Debit mandate

Issuance form: Government of India Stock under Gsec Act 2006. The investors will
be issued a Holding Certificate. The bonds are eligible for conversion to demat form

Redemption price: The redemption price will be in Indian Rupees based on previous
week's (Monday- Friday) simple average of closing gold price for gold of 999 purity
published by IBJA

Sales channel: Bonds will be sold directly through banks and Post Offices which will
be linked to RBI. Agents such as NBFCs and NSC agents may also distribute the bonds
authorised through banks/ Post Offices

Interest rate: Fixed rate of 2.75% per annum payable semi-annually on the initial
value of investment

Collateral: Bonds can be used as collateral for loans. The Loan-To-Value (LTV) ratio
is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time

KYC Documentation: Know Your Customer (KYC) norms will be the same as that for
purchase of physical form of gold, such as Aadhar card/ PAN or TAN/ Passport

Tax treatment: Capital gains tax treatment will be same as for physical gold for an
'individual' investor

Tradability: Bonds will be tradable on exchanges/ NOS-OM from a date to be notified

by RBI

SLR eligibility: The Bonds will be eligible for Statutory Liquidity Ratio (SLR) as
they form part of market borrowing programme of the Government of India (GOI)

26

The government has launched a second tranche of sovereign gold bond scheme that will be
available for public subscription from January 18-22, the finance ministry said in a statement
on Thursday. The bonds will carry an interest rate of 2.75 per cent per annum for the year
2015-16, payable on a half-yearly basis and will be available both in demat and paper form.

How will government benefit by issuing the bond?

India being amongst the top three country relying heavily on importing physical gold due to
higher demand which increases the import bill. Issuance of this bond will help in reducing the
physical demand for the gold and reduce the import bill which in turn will help in
strengthening Indias economic strength.

27

Certificate of Holding

28

INDIAN GOLD COIN

The Indian Gold Coin is part of Indian Gold monetisation program. The coin will be the first
ever national gold coin will have the national emblem of Ashok Chakra engraved on one side
and the face of Mahatma Gandhi on the other side. Initially, the coins will be available in
denominations of 5 and 10 grams. A 20 grams bar/bullion will also be available. The Indian
Gold Coin is unique in many respects and will carry advanced anti-counterfeit features and
tamper-proof packaging that will aid easy recycling.

FEATURES

Purity
The Indian gold coin will be of 24 karat purity and 999 fineness.

Hallmarked
All coins will be hallmarked as per the BIS standards.

Security
The tamperproof packaging and advanced anti-counterfeit features on the coin cover make s
it very safe and easily recyclable.

Availability
This coin will distribute through designated & recognised MMTC outlets.

Weight:

The gold coins would be available in the denominations of 5 grams and 10 grams.

20 grams bar/bullion will also be available.

29

Coins are hallmarked as per the BIS standard.

During the initial launching phase, government would launch 15,000 coins of 5
grams, 20,000 coins of 10 grams and 3,750 gold bullions.

Where to buy these gold coins from?

Individuals can buy it from designated and recognized Metals and Minerals Trading
Corporation of India (MMTC) outlets. MMTC is Indias largest importer of gold and largest
bullion supplier.

Documents required for purchasing gold coin:

KYC documents which includes Voter ID, Aadhaar Card or PAN etc will have to be produced
while purchasing the gold coin.

Where else you can purchase gold coins in India?

Selling and purchasing of gold coins as per market rate is very common in India and can be
purchased from:

Banks: ICICI Bank, SBI, Axis Bank, HDFC Bank, Union Bank of India, Bank of
Baroda, PNB and many others.

Jewellers: Trusted jewellery brands such as Tanishq, PN Gadgil, Gitanjali and others

eCommerce Company: Amazon, Candere, Snapdeal and others

30

Challenges for Gold Monetization Scheme:

The Indian consumers attach a high degree of emotional value to their gold holding,
especially traditional jewellery; thereby deposits of gold jewellery for re-casting are likely to
be low. Additionally, major gold holding in India is in the form of jewellery (contributing
almost ~80-85% of the total domestic holding), thereby, for diamond & other stone-studded
jewellery, recasting the gold jewellery will significantly decrease the value of the ornament.
The consumer also loses on the making charges paid by them for the ornament.
The process of purification testing and assaying of gold is a cumbersome process both for the
consumer as well as the bank. While rural India possess a good chunk of domestic gold
deposit, thereby refineries located at urban & sub-urban centers may create logistic problems
for the rural consumers.
While banks will play a central role in the working of the scheme; they do not possess any
expertise in terms of purity testing or custody of physical gold. Thus they have to depend on
other players for the smooth working of the scheme. Thereby, presence of multiple
intermediaries along with smaller minimum deposit amount of gold will lead to higher
number of transactions and will most likely increase the transaction & handling cost of the
banks.
The duration of the deposits will also play a role in the decision making of the depositors,
wherein smaller duration schemes of minimum one year with option of roll over will provide
more flexibility to consumers. While pre-mature redemption feature has been proposed by the
MoF in the draft schemes which makes it attractive for the consumers similar to present gold
deposit scheme (GDS) the banks.
Another important assessment of the scheme is the price risk assumed by the parties involved
in the process (individuals, banks & jewellers). While jewellers do normally hedge their price
risk of gold, bank also have to secure their gold price fluctuation risk, given the probable
duration mismatch between gold monetization scheme for consumers and credit period
allowed to the jewellers.
31

The MoF has proposed Know Your Customer (KYC) fulfillment for depositing gold, which
can be a deterrent, in case of incremental scrutiny by the Income-Tax Department on
deposited gold. Also majority of the consumers may not possess the original bill or voucher
of the jewellery which in many cases can be inter-generational & archaic, thus posing
additional roadblock in case of documental evidence for gold holdings are sought by the
authorities.
Further, the interest rate for gold deposit has to be kept attractive for the consumers, which
presents dimensional problem in cases where the bank is further lending the gold to the G&J
players. Higher interest on gold deposits to consumers will make gold procurement through
GMS for G&J players dearer, thereby, its attractiveness in terms of interest and credit period
benefit against the present Gold Metal Loan (GML).
The prevailing GML scheme has inbuilt mechanism which covers the gold price fluctuation
risk for the G&J players; however the proposed scheme has been silent about it. It puts
additional pressure on the banks to hedge their exposures and this will tend to inflate the
forward lending rate of gold to jewellers.

32

Recent News Regarding Schemes:Somnath Temple to invest in Gold Monetization Scheme:The Somnath Temple Trust is all set to become Gujarat's first temple to deposit its idle gold
in the Gold Monetisation Scheme as its trustees including Prime Minister Narendra Modi
have given their nod to invest the yellow metal reserves in the scheme. The trust has around
35 kg of gold and will deposit the gold which is not in day-to-day use of the temple. The
decision was taken during the recently held meeting of trustees at Modi's residence in Delhi
on January 12, said the trust secretary P K Lahiri, who is also one of the trustees of the
Somnath Temple, situated in the Gir-Somnath district. "During the meeting, all the trustees
have agreed to the proposal of depositing the gold, which is not in day-to-day use of the
temple, in the Gold Monetisation Scheme," said Lahiri. According to him, the trust is having
around 35 kg of gold, which is either in the form of pure gold or ornaments. Now, the
management will segregate the pure gold from the whole lot to finalise the quantum of gold
which can be deposited. "We don't have a huge amount of gold. Majority of the gold is used
for decoration on day-to-day basis in the temple. Thus out of that 35 kg of gold, we will
separate pure gold which can be deposited under the scheme," said Lahiri. Other trustees of
the Somnath Temple trust include former Gujarat Chief Minister Keshubhai Patel, who is also
the chairman of the trust, veteran BJP leader L K Advani, Harshvardhan Neotia and JD
Parmar. All these six trustees were present during the meet. BJP president Amit Shah was
appointed as the seventh trustee during the meet on January 12. Gujarat has three main
temples -- Somnath Temple, Dwarkadhish Temple in Devbhoomi, Dwarka district and
Ambaji Temple in Banaskantha district. All of them are run by their respective trusts, which
are governed by Gujarat Pavitra Yatradham Vikas Board. However, apart from the Somnath
Temple, no other prominent temple in Gujarat, which has the capacity to deposit their gold,
have shown interest in the scheme. While Dwarkadhish Temple body is yet to give a thought
to the scheme, Ambaji temple authorities have outrightly rejected any possibility of
depositing their gold in the scheme at present. According to Devbhoomi-Dwarka collector
and ex-officio chairman of Dwarkadhish Temple trust committee H K Patel, no formal
discussion has taken place yet among the trustees about depositing gold in the scheme.
Banaskantha collector and chairman of Ambaji Temple trust committee Dilip Rana clearly
33

ruled out any possibility of depositing their temple gold under this scheme. "At present, the
work is underway to cover the main temple with gold. Whatever gold or cash we are
receiving as donations at present, goes into decorating the outer layer of the temple. Thus,
depositing gold under this scheme is out of question until this project gets completed.

Siddhivinayak temple set to give Government gold scheme a boost:One of the most popular temples in India may soon make the first substantial contribution to
Prime Minister Narendra Modi's plan to recycle tonnes of idle bullion to reduce imports and
the country's current account deficit. Mumbai's two-century-old Shree Siddhivinayak temple,
devoted to the Hindu elephant-headed god Ganesha, is considering depositing some of its 160
kilogrammes (kg) of gold with banks, according to a spokesman. The deposit would be a big
boost for the gold monetisation scheme that has attracted only one kg in its first month. "We
are planning to melt 40 kg of jewellery with lower purity to make bars and deposit those bars
under the gold monetisation scheme," Sanjiv Patil, executive officer of the temple trust told
Reuters on Wednesday. A final decision will be made later this month, he said. Modi launched
the scheme to tap a pool of over 20,000 tonnes of gold held by Indian households and
temples. India is the world's second-biggest consumer of gold after China. It is used for
investment, religious donations and wedding gifts. The country's insatiable appetite meant
imports of the precious metal accounted for 28 percent of India's trade deficit in the year
ending March 2013. The idea is to recycle the idle gold to meet fresh demand and thus reduce
bullion imports, the second biggest expense on India's import bill after oil. India's temples
have collected billions of dollars in jewellery, bars and coins over the centuries, hidden
securely in vaults. Modi wants temples to deposit some of this with banks, in return for
interest and cash at redemption. The government would melt the gold and loan it to jewellers.
The monetisation scheme has so far met with a tepid response. The Siddhivinayak temple has
in the past given 10 kg of gold to a bank under an old deposit scheme, Patil said. "Under the
old scheme we were getting 1 percent interest. Now banks are offering 2.5 percent. So we
think this is good scheme," he said, adding that the temple will deposit the jewellery that it
failed to auction. Devotees of the temple, which is often frequented by Bollywood stars,
mostly seemed to support the decision. "Once devotees offer ornaments, it is the trust's
decision to decide what is good for the trust," said Rakesh Kapoor, a New Delhi-based
businessmen, who visits the temple every time he is in Mumbai. Out of the 10 devotees
Reuters spoke to at the temple premises, only one was not in favour of the scheme. "I don't
34

think the trust should melt offered jewellery to make bars. People may reconsider offering
jewellery if the trust starts doing that.

Bibliography:

https://en.wikipedia.org/wiki/Monetization
https://in.finance.yahoo.com/news/gold-monetization--what-it-means-

095100975.html
http://finmin.nic.in/swarnabharat/
http://finmin.nic.in/swarnabharat/indian-gold-coin.html
http://www.thehindu.com/business/all-you-need-to-know-about-gold-monetisation-

scheme/article7224428.ece
http://www.moneycontrol.com/news/gold/how-to-investgoldindia_983090.html
http://www.investopedia.com/articles/forex/11/golds-effect-currencies.asp
https://en.wikipedia.org/wiki/Type_metal
https://en.wikipedia.org/wiki/Gold
http://goldresource.net/types-of-gold/

35